Archive for December, 2013|Monthly archive page

Anyone working on a new idea has been there — convincing risk-averse leaders to fund a new innovation or persuading a skeptical customer to try out a new product. Seasoned innovators understand that developing new technology or hatching a new business idea is important, but it’s only the beginning of an often lengthy and arduous process. You have to articulate the idea well, “sell” the promise of future value, and allay concerns using only a prototype or a few presentation slides. Fortunately, innovators can leverage proven techniques that improve the odds of getting organizational attention, funding, and customer trial.

Innovation’s obstacles

In our consulting work, we have seen four obstacles hamper the launch of new ideas: 1) a weak business case; 2) the risk aversion of key decision makers; 3) lack of trust in the person/company making the pitch and; 4) the tyranny of choice.

Business case

It is not uncommon for business plans to lack a strong ROI, quick revenue payback or validated consumer demand. Moreover, many sponsors lack the persuasion skills to sell their idea. “Generally, scientists have very little training or experience in devising and communicating a strong business case for their innovations,” says Dr. Robert Foldes, biotech entrepreneur and CEO of Viteava Pharmaceuticals. “This is why many innovations ‘whither on the vine’ and never see the light of day.” Moreover, outlining real value creation is vital. Research from the Harvard Business School suggests new products must deliver six to eight times more value than alternatives to overcome latent buyer inertia.

Risk aversion

An innovation can bring your audience out of its comfort zone, generating anxiety and confusion. According to behavioural psychology, most individuals are programmed to prefer the ease and safety of established norms. Furthermore, some stakeholders (e.g. finance or operations) may be reluctant to embrace change given their personality traits or departmental mandate.

Lack of trust

Given a new idea’s uncertainty, decision makers will seriously consider the sponsor’s trustworthiness, passion and track record. Occupying a position of trust is difficult when the sponsor and his or her work is unfamiliar to the decision maker.

Tyranny of choice

Within companies, technologies or categories, people typically face a bewildering number of choices on what to pay attention to, fund or buy. Sheena Iyengar, author ofThe Art of Choosing, found that the more choices people faced the more likely they would end up making a sub-optimal selection — or making no choice at all.

Improving innovation’s appeal

Maintaining the status quo is a natural state for many people and organizations. To get decision makers comfortable with your innovation, consider these tried and true persuasion techniques:

Understand your audience

Before presenting your innovation, understand what makes your audience tick, the incentives it values and use the lexicon with which it is most comfortable. Different audiences and departments may require pitches tailored to their specific needs and concerns. With a financial services client, we found senior leaders viewed innovation through a strategic lens of outflanking competition and boosting return on assets. Middle managers, on the other hand, evaluated innovation only by its impact on tactical metrics like ROI and churn.

Make a good case

Persuasion skills are a critical ingredient for every innovation team. According to Foldes, “Every project can benefit from a seasoned professional with strong communication and inter-disciplinary skills that can bridge the worlds of science/technology and business.”

Sponsors can avoid triggering confusion, boredom or cynicism by not pitching ideas through long, technically dense or esoteric presentations. Where possible, use analogies from other industries, mockups and different media formats to easily communicate complicated ideas. We helped an IT company secure financing of a new product by integrating the pitch within an emotional narrative that encapsulated everyday life experiences of potential customers.

Preempt challenges

Every new idea will and should encounter some resistance such as questions around competition, research blind spots and debates over financials. Instead of sidestepping these concerns, promoters should welcome healthy debate on risks as well as brainstorm on how to mitigate them. Honesty and collaborative engagement is vital to developing a prudent launch plan and building trust between the parties.

Create real innovation

No matter how well you pitch, a bad idea will be seen as such. Know when to cut your losses and move on to the next innovation.

According to research on successful entrepreneurs, their single most important trait is the capacity to spark interest and convince. Whether you are an entrepreneur or an intrapreneur, your persuasion skills are tightly linked to your ability to alleviate fear and lay out a positive future state. To do this, you should rethink the content of your business case, how you plead your case and what is the value of the innovation to all stakeholders.

Warren Buffet once relayed the wisdom of another business leader that when looking to hire, managers should look for three qualities: integrity, intelligence and energy, and that if the first one isn’t present, the other two will kill you.

The current business climate has never been tougher on senior managers. Based on executive turnover statistics, many managers do not seem up to the task. Perhaps organizations are too impatient, they cannot attract sufficient talent etc. Or, there is another reason. The hiring process is ignoring a fundamental tenet of effective management — character. You don’t need to go far (Dennis Kozlowski of Tyco and Jeffrey Skilling of Enron quickly come to mind) to find examples of how character deficit has seriously harmed a company. Fortunately, firms can bridge this character gap through better selection criteria and recruiting processes.

Every job description and recruiter talks about character but few actually account for it in a meaningful way. Character describes a series of positive personality traits such as integrity, honesty and courage; it is a prerequisite for effectively dealing with people and their environments — in other words management. Maximizing the amount of character by person or group can help drive financial and organizational performance, including fostering effective leadership, encouraging communications and problem solving. This can be especially true in difficult operating environments.

The character gap

Poor character has been cited as a major reason for high levels of turnover. In his research for the book, Hiring for Attitude, author Mark Murphy found that among the 20,000 new hires he tracked, 46% failed within 18 months. About 90% of the time, the turnover could be attributed to attitudinal reasons such as low emotional intelligence, motivation and temperament. Addressing this character deficit is tough. Herb Kelleher, former Southwest Airlines CEO has said, “we can changes skills levels through training, be we can’t change attitude.”

The impact of this turnover on organizational performance and cost should not be minimized. G.H. Smart, writing in his well-regarded book, Who, says “the average hiring mistake costs 15 times an employee’s base salary in hard costs and productivity loss. Hence, a single hiring blunder on a $100,000 employee can cost the company $1.5 million. “

Successful companies understand how important character is to business success. Like Warren Buffet, Jim Collins, author of Good to Great, found that: “The good-to-great companies placed greater weight on character attributes than on specific educational background, practical skills, specialized knowledge or work experience.”

Why does character get short shrift? The fault lies in the typical recruitment and evaluation approach:

Incomplete selection criteria: The usual job description includes a laundry list of needs that are weighted heavily on skills and experiences. Intangibles like character, if they appear, are often at the bottom of the description reflecting their lower priority and scant consideration. Worryingly, when an organization is under stress, their leadership may abandon character requirements altogether, adopting a “tough times call for desperate measures” approach.

One-dimensional assessment:Evaluators often focus on the tangible aspects of a candidate. Rarely, are questions around character posed. Paul Bruner, a partner at McCracken & Partners Executive Search says, “Boards and Search Committees, for example, often feel uncomfortable exploring issues of character with senior-level candidates. There is a tendency to assume because an individual happens to be accomplished in their field that they’re naturally a person of strong character.”

Transactional process: Although people-intensive, hiring by its nature is a transactional, time-sensitive and expensive process — especially when pricey recruiters are involved or a major role needs to be filled quickly. Unsurprisingly, the process can easily skip over “soft” issues like character.

Reemphasizing character

Use independent evaluators

It is natural for organizations and evaluators to have bias. An objective and experienced recruiter can directly probe a candidate’s character, drill deep into references and provide an independent view.

Employ a character “lens”

Target character head on. Ask specific questions that get to character like: Describe your three biggest work mistakes? Or, list your three core values? Firms can also use role playing to illuminate a candidate’s integrity in an ambiguous situation. Where possible, have two interviewers in the room, with one person posting challenging (but ethical) questions and another reading body language and taking notes.

Optimize the process

Some hiring decisions are mission critical. Bruner advises, “Organizations need to treat key hires like a major investment and undertake the necessary due diligence that includes undertaking multi-person, in-depth interviews and 360-degree reference checks. Success comes from investing the time and asking the right questions.” Using psychometric testing can also provide deeper insights and confirmatory feedback.

Anyone familiar with large organizations has probably heard the phrase “you can’t manage what you can’t measure.” For most of my management and consulting career, I took this as a truism. Not any more. A recent client engagement and a review of the latest research have taught me the dangers of relying too heavily on metrics, especially bad ones, to spur better business results. This is not to say that metrics have no role; far from it. However, leaders should use them sparingly and consider alternative motivational tools.

Take, for example, work we recently did with a financial services institutions, which had historically earned above industry returns. Since 2009, it faced two significant headwinds: first, mounting customer churn that marketers believed traced to product issues; and, secondly, shrinking margins, driven by steadily increasing costs and a perceived inability to raise prices. Not surprisingly, employee engagement scores were also floundering. The company was looking to understand what was really going on and improve operational performance. After undertaking a root-cause analysis, we discovered that many of the problems stemmed from the poor choice and management of newly established metrics. Our fix was relatively simple (though a challenge to sell through parts of the organization): get rid of some (but not all) of the new metrics and focus on a few key performance indicators (KPIs).

CEOs looking to improve corporate performance without damaging employee engagement should heed the following lessons. They include:

Metrics mask problems

Companies often use a metric without understanding what they are trying to improve. For example, our client added a new metric, customer satisfaction, without thinking through what the internal and external drivers of the higher churn were. The first two customer surveys were telling: satisfaction went up but so did churn. After a deeper analysis, we found that the churn traced primarily to poor service and communication of the product’s value not product performance, which the new metric was based on. This blunt metric led management to focus on the wrong things.

Metrics create conflict

Very often metrics are used in functional or divisional silos, with little consideration paid to how they negatively impact other group’s performance and results. For example, a procurement department’s metrics around cost reduction can put it into direct conflict with the manufacturing group, which is measured on just-in-time raw material supply. Manufacturing managers would understand that paying higher prices is necessary to achieve their objective.

Managers become overly focused on metrics and not performance

Many employees focus their efforts solely on the metrics by which they are measured on. However, their actions may not be congruent with what’s best for the business. This misalignment can be illustrated by the attention paid to measurement systems like scorecards. Many of my client’s managers spent upwards of 20% of their valuable time managing around scorecards — collecting data, positioning the numbers and lobbying their ‘story’. Their efforts would have been better spent on other (non-measured) corporate goals like innovation and coaching.

Metrics lack credibility

Some common measures like brand image and employee engagement lack sufficient credibility to motivate many workers and trigger improved performance. These metrics are often viewed as disconnected from everyday reality, obtuse or too blunt to be practically influenced. This metrics-induced “credibility gap” contributed to the client’s low employee engagement scores.

Metrics can lead to unintended consequences

Unexpected things happen when organizations focus on some metrics. The pursuit of revenue goals led some members of the company’s sales and service teams to do things that were inconsistent with company values, teamwork and ethical behavior.

Where do we go from here?

To reiterate, metrics are not bad per se. Bad metrics are bad. We recommend firms take three steps to reduce metric madness:

Know thyself

Really understand your business and customers, and what drives performance. Make sure existing metrics reflect these key drivers. Furthermore, create new Key Performance Indicators (KPIs), if necessary, that can act as proxies for many essential activities. For example, a ‘ship on time, in full’ KPI illuminates a lot of information about a firm’s production, logistics, service and inventory management performance.

Less is more

There should be no more than four to five organization-wide (not siloed) measures that encompass all facets of the business. Take care not to over-manage these through scorecard creation and reviews. However, changing metrics may require the organization to revamp its compensation and performance measurement systems.

Manage people not numbers

It’s people who generate value, not metrics. This fact may be inconvenient or difficult for some managers but it is a prerequisite for higher performance and engagement. Changing a status quo that benefits many people and is part of a legacy culture is tough. Leaders need to be bold and stick to their guns. It is well worth it.

The holiday season is a time for celebrating — and prognostications for the coming year. I’m typically an optimist, but not this time. Though many factors point to a rosier 2014, every company faces some significant direct and indirect risks, many of which lurk below the surface. Fortunately, these dangers can be alleviated with good analytics and planning.

Recent positive economic news (e.g. the strength of equity markets, low interest rates and the abatement of EU and U.S. debt crises) have given corporate managers some cause for optimism. It would be understandable, but hazardous, for managers to let their guard down. Many risks continue to menace organizations, four of which are:

Stagnating prices

Raising prices is a quick path to higher profits. To wit, a 1% increase in prices with a 30% margin can improve the bottom line by 20%. Just try making it happen. Since the financial meltdown of 2008, it has been difficult to raise prices while maintaining market share. In Canada’s retail sector, for example, the arrival of Target and Marshalls plus recent grocery price wars, is expected to depress industry profitability for some time. Many other sectors like services, manufacturing and communications are finding it difficult to sustain margins due to buyer pressure, global competition and steadily increasing costs.

Mitigating the risk

From a pricing perspective, firms need to more aggressively sell their products in markets that are less price sensitive or that are rapidly growing markets, both locally and in the developing world. Furthermore, those companies with differentiated value should look to take pricing up by better aligning price points to the unique benefits delivered.

Cost pressures

Global consultancy EY estimates that a 1% reduction in costs can produce the equivalent of a 10% increase in sales. Achieving this is another story. In many firms, most of the easy supply chain and headcount rationalization savings have already been tapped. Moreover, the era of low raw material and wage inflation may be coming to an end, tracing to two key drivers — the recent uptick in consumer demand and the possibility that China’s growth engine will reignite, driving up raw material costs. Adding fuel to the fire is continued exchange and interest rates volatility, which can play havoc with costs.

As has been shown many times, unforeseen events like natural disasters or political crises can seriously disrupt a firm’s operations, dramatically impacting product supply and revenue. Risks are magnified when a company’s supply chains are regionally concentrated and highly integrated. For example, Japan’s Fukoshima nuclear disaster led to global shortages of spare parts and shuttered assembly plants for Honda and Nissan. A recent report by Swiss Re, a reinsurance company, highlights the ongoing risk of major natural disasters such as flooding, earthquakes and storms. The report identifies above-average risk for many global economic hubs including: Tokyo, Hong Kong-Guangzhou, New York, Los Angeles and Amsterdam-Rotterdam.

Mitigating the risk

Maintaining a low-cost supply chain must be balanced with the need for added production flexibility and agility. Managers can minimize this operational risk by having: multiple supply-chain partners for critical and expensive inputs; close and symbiotic relationships with each vendor; and the internal capability (e.g., engineering, procurement) to quickly shift production if necessary.

Cyber attacks

Computer attacks and viruses represent a clear and present threat to every enterpriseand industry. This year, the Securities Industry and Financial Markets Association released a report that showed more than half of the world’s securities exchanges had experienced cyber attacks during the past 12 months. Janet Napolitano, the outgoing U.S. homeland security chief, recently said, “Our country will, at some point, face a major cyber event that will have a serious effect on our lives, our economy, and the everyday functioning of our society.” Importantly, these cyber attacks can appear out of the blue. According to software provider Symantec, 40% of all the computers that were impacted by the Stuxnet virus, which allegedly targeted Iran’s nuclear infrastructure, were located outside of Iran.

Mitigating the risk

Reducing the impact of cyber attacks requires an acknowledgement of the threat, an understanding of internal vulnerabilities and the business continuity plans to deal with potential disruptions. Furthermore, IT managers should work together with their industry peers to explore industry early warning systems and safeguards.

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About Mitchell Osak

Mitchell is a management consultant with a passion for strategy development and execution. He has 20+ years of consulting and senior operational experience in a variety of Fortune 1000 firms. Mitchell is considered an "un-consultant" for his collaborative approach, expert problem solving and holistic strategic insights. His email is: mosak@quantaconsulting.com